1. Government
September 28, 2015

Here’s why it’s time to let England’s councils set their own taxes

By Paul Watson

The author is the Labour leader of Sunderland Council.

As the party conference season arrives, the prospects for devolution in England are the brightest they have been in a very long time. There have been 34 proposals submitted to the government by various city and county regions, including my own north east. This momentum presents an opportunity for councils to show how effective local government can be in delivering services tailored to local communities.

We do, however, have some reason for caution. The Cities & Local Government Bill, the government’s flagship legislation, does not mention tax powers, instead focusing purely on councils’ powers to do what they will with the budgets given to them.

But tax powers are a critical element in driving forward economic prosperity across the country. Without them, the devolution agenda is only half-complete, and there is every danger of back-sliding. The question is, then, how can local authorities continue to press chancellor George Osborne to promote devolution deals, especially on the question of tax?

The first argument to make is that tax raising powers establish powerful incentives for better performance and accountability. Our upcoming report The Missing Multipliers: Devolution to Britain’s Mid Sized Cities, launched in conjunction with ResPublica, estimates that giving local authorities control over council tax, stamp duty, and more power over VAT  would meet Osborne’s deficit reduction objective by saving the Treasury £12.5b over the course of a parliament.

Reforms along these lines will end the situation of divided accountability which complicates the relationship between central and local government. Currently, Whitehall and the chancellor are responsible for allocating budgets but not responsible for the delivery of services. Councils are not responsible for allocating budgets, but are responsible for the delivery of services. This creates an unsustainable situation where councils feel constrained by the chancellor, and the chancellor feels encumbered by local councils.

Giving authorities like ours tax powers can resolve that situation. Councils with ambitious wealth creation plans will not have to go to the Treasury for money or special approval. They can change their tax rates, introduce new exemptions, and create new incentives to support local innovation. That will take the pressure off Whitehall budgets and generate new revenue through local growth, as initiative and the responsibility will be ceded to local councillors directly accountable to their constituents.

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There will of course be disagreements between central and local government: anyone would expect that. These disagreements should not, however, obstruct our shared goal of making this country more productive, more innovative, and more efficient.

That’s where tax powers come in. If we are all bound to the same tax policy, we will not have the flexibility to inject life into our local economies. With these powers, the chancellor can fulfil the Government’s national policy objectives, and councils can pursue tailored constituency policies that meet the needs of the communities they were voted in to represent.

Perhaps then we can achieve a smoother and more constructive relationship between local and central government. We can also avoid the perception that the chancellor has veto over local authority policies he does not like by pulling purse strings.

I think this will also reassure our constituents that devolution does not mean that they lose their influence over the policies which affect their lives. Whatever tax policies and incentives a newly empowered authority wants to put in place will be subject to the public at the ballot box. Ultimately, democracy, both local and national, will decide the practical shape, the ambition, and the achievements of devolution.

And that’s what we want. We want to settle the question of accountability, so that we don’t get caught up in a two-way blame game with Whitehall. That’s good news for us, and good news for the government. It provides a framework of responsibility which allows for public service innovation and incentives for improved economic performance. We can all endorse that.

Cllr Paul Watson is leader of Sunderland City Council and chair of the Key Cities group of 26 mid-sized cities.

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